Debt crisis: Greece heads for sixth year of recession

Greece is heading for its sixth year in recession, the finance ministry in
Athens warned, adding to pressure on European leaders to ease their demands
for austerity or watch the indebted country crumble.

Greece has asked for more time to meet the terms of its bail-out to ease the impact on the economyPhoto: EPA

In a draft Budget for 2013 the finance ministry said it expected GDP to contract by 3.8pc next year after contracting 6.5pc this year. The figures are drastically worse than forecast in March at Greece’s last bail-out agreement, when officials said the economy would shrink 4.8pc this year before stabilising next year.

The Budget, which has involved months of highly volatile negotiations between members of the Greek coalition, was submitted to the parliament on Monday.

Amid intense rioting in Athens last week, Antonis Samaras finally secured the agreement of the coalition parties to a further €13.5bn of spending cuts and austerity measures for the next two years. The measures, which include further cuts to wages, pensions and benefits, are designed to reduced the deficit to 4.2pc of GDP next year from 6.6pc this year, according to the draft Budget.

Talks resumed on Monday between Greece and representatives of the troika - the European Union, the European Central Bank and the International Monetary Fund. Greece needs troika approval of the new Budget to secure its next tranche of bail-out money of €31bn. Greece has asked for more time to meet the terms of its bail-out to ease the impact on the economy.